Savola Al-Azizia poised for year of fatter profit

Saudi food retailer Savola to see healthier margins in 2012 on lower food prices, Riyadh-based NCB Capital says.

Saudi Arabia's Savola Al-Azizia United should see healthier profit next year as slower global economic growth is expected to ease food commodity prices. About 85 per cent of the company's revenue is spent for raw materials.

Are you the strongest link?

Business Quiz 2011 Do you have your finger on the pulse of business? Take our online contest for your chance to win brunch for two. Take the quiz

The kingdom's biggest food processor has not been able fully to pass along higher prices.

"Next year should be relatively better as global soft commodities fall," said Farouk Miah, an analyst at NCB Capital in Riyadh. "Lower raw material prices could mean the premium which Savola charges for converting the raw commodity into the refined version should increase."

Mr Miah upgraded Savola to "overweight" from "neutral" and raised the target share price 7 per cent to 32 riyals. The stock fell 0.7 per cent to 27.70 riyals yesterday.

Savola's investments include a supermarket chain, a milk and dairy producer, a fast-food chain, and a host of edible oils-and-sugar businesses.

The retailer last month announced its entry into the pasta business through acquiring a 78 per cent stake in the Egyptian company Al-Malika & Al-Farasha. Al-Malika has an annual production capacity of 120,000 tonnes and a domestic market share of more than 30 per cent.

Savola acquired the remaining 22 per cent stake on December 13.

"Savola's strategy is to commence with an edible-oil business in a particular geography, followed by sugar and then other parts of its business," Mr Miah said. "This allows Savola to take advantage of existing distribution networks and increase efficiencies between the businesses."

Savola owns 26.5 per cent of Almarai, the largest dairy and milk producer in the Gulf region.

Savola, through subsidiaries Afia International and Savola Foods Emerging Markets, operates 11 edible-oils production facilities in eight countries and supplies markets in 30 countries.

twitter: Follow our breaking business news and retweet to your followers. Follow us